TEXT-Fitch: utilities outlook negative across much of Europe
Link to Fitch Ratings' Report: 2013 Outlook: European UtilitiesDec 13 - Structural changes in electricity generation, a downturn in demand and the risk of political interference all contribute to a negative outlook for much of the European utilities sector in 2013, Fitch Ratings says. These factors are making cash flows less predictable, damaging a key advantage that had allowed the sector to support higher leverage than most other industries. In some instances, together with limitations on how high a domestic corporate can be rated above a sovereign, this has resulted in a negative utilities outlook in Germany, Italy, and Iberia. Generators with a bias towards thermal technologies such as coal and gas are most at risk, especially if they operate in countries like Germany, Italy or Spain, where there has been a strong push towards renewable energy. Operators that are locked into uneconomic fuel contracts and those in countries with the weakest economies (leading to a downturn in demand for electricity and gas) are also at risk. The weak consumer environment and pressure on governments to limit rising utility bills has also increased the danger of regulatory changes or political interference, which could lead to ratings downgrades. Spain is a clear example - regulatory measures including a new tax introduced to eliminate the tariff deficit mean the negative outlook is likely to persist for the medium term. The other regions within Europe all have a stable outlook. This reflects greater financial headroom among central European generators, less structural pressure on operators in France and the CIS and more supportive policy proposals for electricity generation in the UK. For more information on our outlook for the sector, please see "2013 Outlook: European Utilities" published today on www.fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.